Nathan Reynoso 
By Dr. Gubad Ibadoghlu, Visiting Senior Fellow at London School of Economics and Political Science (LSE) and a senior policy analyst at the Economic Research Center (ERC), Baku, Azerbaijan
28 February 2025
Ukrainian President Volodymyr Zelenskyy firmly stated, “Ukraine will not allow the transit of Russian gas under an Azerbaijani label,” making a strong political declaration less than a month after the termination of the transit arrangements outlined in the 2020–2024 agreement signed between Ukraine’s Naftogaz and Russian Gazprom on December 30, 2019.
President Zelenskyy reached this position following discussions with Azerbaijani President Ilham Aliyev on January 22, 2025, during their meeting on the sidelines of the Davos Economic Forum. Their talks focused on the feasibility of exporting Azerbaijani gas to European markets using Ukraine’s transportation infrastructure – Sudzha gas pipeline, if necessary.
The Sudzha gas pipeline is part of the Urengoy-Pomary-Uzhgorod gas pipeline (formerly known as the Brotherhood pipeline, with a length of4,451 km, including 1,160 km on the territory of Ukraine), which runs from western Siberia to Slovakia. The main buyers of gas via the Sudzha pipeline were Hungary, Slovakia, and Austria.
The gas was divided in Slovakia, with one branch going to the Czech Republic and the other to Austria. In 2023, approximately 15 billion cubic meters (bcm) of Russian gas were transported to Europe via Ukraine, accounting for only 8% of peak Russian gas flows to Europe via various routes. In 2024, 14.3 bcm reached Slovakia for further distribution to the EU and 2 bcm were supplied to Moldova, including the breakaway, Russian-controlled, Transnistrian region. In 2023, of the Russian gas transiting Ukraine, 6 billion bcm went to Austria, 6.5 bcm to Slovakia, and 1 bcm to Hungary.
The shutdown of Russian gas transit through Ukraine, resulting from Russia’s war of aggression, has had significant negative repercussions. The most impacted nations are Austria, Slovakia, and Moldova, particularly Transnistria. Hungary is also affected; it received some gas via Ukraine and supplies from TurkStream, a natural gas pipeline running from Russia to Turkey. The TurkStream pipeline project consists of two parallel pipelines each with the ability to deliver up to 15.75 bcm/year.
To compensate for the missing gas, Europe must either increase liquefied natural gas (LNG) imports, find alternative sources, or reduce consumption. For the past three years, the European Union has been working to replace Russian gas with LNG and imports from other countries. But the shutdown has left those countries without direct LNG import access, such as Slovakia, Austria, and Hungary, particularly vulnerable due to their reliance on Russian gas.
As for financial losses, Russia has lost approximately $4.5 billion per year due to the suspension of this pipeline, at an estimated price of $300 per 1,000 cubic meters. Ukraine has also lost some $800 million a year in energy transit fees from Russia. Slovakia estimates that ending the Ukrainian transit will cost its economy $184 million due to the need for alternative gas routes.
There are several significant challenges in delivering Azerbaijani gas to European markets via Ukrainian infrastructure. Below are the key issues:
Gas Transportation Constraints
The only operational gas pipeline between Azerbaijan and Russia is the Hajigabul-Shirvanovka-Mozdok Pipeline. While its technical capacity is 10 billion cubic meters (bcm), its actual transmission capacity is only about 5 bcm. This pipeline runs from North Ossetia in Russia to central Azerbaijan and does not have a direct connection to the Sudzha-Urengoy-Pomary-Uzhgorod pipeline, which transports gas from Russia to Ukraine and then to Europe.
Currently, Azerbaijani gas can only be transported as far as the Russian city of Mozdok. However, the distance from Mozdok to Sudzha is approximately 1,500 km, with more than half of the route passing through an active war zone, making transit highly unreliable and risky.
Given these challenges, some talk about a SWAP operation between Azerbaijan and Russia. Under this arrangement, Azerbaijan would send gas to Russia via the Hajigabul-Shirvanovka-Mozdok Pipeline, and in return, Russia could inject an equivalent amount of gas into the Sudzha-Urengoy-Pomary-Uzhgorod pipeline, which supplies Europe.
The gas exchange between Azerbaijan and Russia, currently operating at 1 bcm per year, is technically feasible but raises concerns about transparency and potential manipulation. A lack of clarity has fueled unrealistic expectations and criticism. For instance, if Azerbaijan and Russia agree to swap 5 bcm annually, Azerbaijan may send only 1 bcm to Mozdok while Russia supplies 5 bcm at Sudzha. This means that 4 bcm of Russian gas reaches Europe under the Azerbaijani label, with Azerbaijan paying 80% of the earnings back to Russia.
Even if Azerbaijan were to send 5 bcm to Mozdok, the region’s low demand makes such a volume unnecessary. More critically, Azerbaijan lacks the extra gas needed to replace Russian supplies in the short term.
Challenges in Gas Supply and Sales
Azerbaijan currently lacks both the existing capacity and foreseeable resources to replace even one-fifth of the 15 billion cubic meters (bcm) of Russian gas previously transported to Europe via Ukraine’s gas transmission infrastructure.
The Shah Deniz Consortium is responsible for producing the majority of Azerbaijan’s export gas. In 2024, the Shah Deniz field produced 27.8 bcm of commercial gas, with 25.2 bcm sold abroad. Following the discovery of a new high-pressure reservoir within the Shah Deniz field, long-term gas sales agreements (GSAs) were signed in September 2013 with nine European energy companies, including: Axpo Trading AG (Switzerland), Bulgargaz EAD (Bulgaria), DEPA Public Gas Corporation (Greece), Enel Trade SpA( Italy), E.ON Global Commodities SE (Germany), Gas Natural Aprovisionamientos SDG SA (Spain), GDF SUEZ S.A. (France), Hera Trading srl. (Italy), and Shell Energy Europe Limited (UK/Netherlands).
According to these agreements, Azerbaijan’s government does not have direct control over the gas produced from the Shah Deniz field. Instead, its shareholders hold the exclusive rights to gas sales; Azerbaijani gas from Shah Deniz is committed to the above-listed companies until December 31, 2045.
Additionally, the only established route for transporting Shah Deniz gas to European markets is the Southern Gas Corridor (SGC), which includes: Baku-Tbilisi-Ceyhan (BTC) Pipeline, Trans-Anatolian Natural Gas Pipeline (TANAP), and Trans-Adriatic Pipeline (TAP). The consortium is investing a total of $14.5 billion (TAP – $5.5 billion, TANAP – $6.5 billion, South Caucasus Pipeline – $2.5 billion) in the construction and expansion of these pipelines. The total investment of the project together with Shah Deniz required a total of $45 billion. This means that the Azerbaijani government and its partners will not be able to reach the zero level under the SGC project before 2030.
Any attempt to divert Shah Deniz gas to alternative routes, such as Ukraine’s infrastructure, would require the explicit approval of the consortium’s shareholders, which is unlikely given the risks associated with the war.
The State Oil Company of Azerbaijan (SOCAR), which operates separately from the Shah Deniz Consortium, produced 7.7 bcm of gas in 2024, a decline of 0.7 bcm from 2023. However, SOCAR’s gas production is primarily used for domestic consumption, limiting the amount available for export.
While domestic gas consumption in Azerbaijan has declined, this reduction has been relatively modest compared to SOCAR’s production decrease. According to SOCAR’s official data, Azerbaijan’s total gas consumption in 2023 was 13.44 bcm.
According to the Columbia Center on Global Energy Policy, Azerbaijan will not have sufficient additional gas supplies in the short term to replace Russian gas volumes. Naftogaz talks about “only 2 bcm of the 14 bcm that the EU receives via the Ukraine pipeline” although that could change in the longer term if buyer interest hits a level that spurs investment.
Challenges in Determining the Selling Price
The transportation of Azerbaijani gas to Europe via Ukraine cannot proceed without Russia’s approval. Both Russia and Ukraine have significant economic and political stakes in this arrangement, making the pricing structure highly complex.
- With the termination of the Sudzha-Urengoy-Pomary-Uzhgorod gas pipeline, Russia stands to lose $4–5 billion annually. Moscow is likely to seek compensation for this loss, potentially by charging additional fees for the transit of Azerbaijani gas through its territory.
- Ukraine is set to lose approximately $800 million annually in transit fees previously paid by Gazprom. To offset these losses, Ukraine may impose high transportation tariffs on Azerbaijani gas, further driving up costs.
- If the price of Azerbaijani gas becomes significantly higher due to additional transit costs and political bargaining, it will impact market demand. A high price could make it less competitive compared to alternative energy sources such as LNG or other pipeline imports.
Challenges in Contract Negotiations
Currently, the export of Azerbaijani gas via Ukraine is only a political proposal. No concrete commercial agreements between companies have been reached, and several obstacles remain:
- The legal and commercial framework for this arrangement has not yet been discussed, let alone finalized.
- Gas supply contracts take months, if not years, to negotiate, as they require detailed agreements on volumes, pricing mechanisms, transit terms, and legal obligations.
- Without binding contracts, the plan remains speculative, and any political changes between the involved countries could derail negotiations entirely.
Conclusion
Many critical questions remain unanswered regarding the feasibility of exporting Azerbaijani gas to Europe through Ukraine’s transit infrastructure. Until key economic, political, and logistical challenges are effectively addressed, the practical implementation of such a project remains highly uncertain.
Given these constraints, Azerbaijan’s ability to replace Russian gas in European markets via Ukraine is highly limited. The country’s primary gas resources are already committed to long-term contracts, which prevents the possibility of sending Shah Deniz gas through Ukraine’s gas transportation infrastructure via the Sudzha pipeline. Production from the Shah Deniz field peaked in 2024, and according to forecasts for 2025, output from the field will be 0.7 bcm lower. SOCAR’s gas production has been steadily declining, with a decrease of 0.7 bcm in 2024 compared to 2023. Furthermore, the Umid-Babek Operating Company (UBOC) led by SOCAR, has not yet begun full-scale development. As a result, there is insufficient gas in Azerbaijan to compensate for the gas lost from Ukraine and meet Europe’s demand. In short, Azerbaijan lacks the necessary gas to supply Europe via Ukraine.
A SWAP scenario between Azerbaijan and Russia presents serious risks. Ensuring an exact volume exchange under a SWAP arrangement would be difficult. Russia could potentially manipulate the figures, receiving 1-2 bcm from Azerbaijan while injecting 3-5 bcm into the European pipeline. This could lead to Russian gas being sold under an Azerbaijani label in European markets. Such a scenario could have grave political consequences, undermining Europe’s energy diversification efforts and increasing the risk of covert Russian gas exports despite existing sanctions. While the idea of exporting Azerbaijani gas via Ukraine has been proposed as a political initiative, significant economic, contractual, and logistical obstacles remain. Both Russia and Ukraine will prioritize their financial interests, potentially escalating transit costs and making Azerbaijani gas less competitive in European markets via Ukraine. Additionally, no formal contractual agreements between Naftogaz, SOCAR, and Gazprom have been established, further casting doubt on the feasibility of this proposal in the near future.